CITY COUNCIL AGENDA ITEM
ACTION REQUESTED:
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Approve the recommendation by Alera Group to award Sole Source Procurement 23-235, Medical Claim Administration Renewal, to Blue Cross Blue Shield of Illinois (BCBSIL) for an amount not to exceed $2,434,310.12 in fixed costs, based on HMO and PPO enrollment, and for a one-year term (Item 1 of 4)
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DEPARTMENT: Human Resources
SUBMITTED BY: Blaine Wing, Director
BOARD/COMMISSION REVIEW:
N/A
BACKGROUND:
Three additional recommendations related to this item are detailed in this memorandum and presented on this agenda for City Council:
• 23-0960: Employee Assistance Program with Curalinc
• 23-1004: Specific Stop-Loss Insurance Policy with Optum, Inc.
• 23-1005: Pharmaceutical Management Services renewal with CVS-Caremark
On April 15, 2014, City Council approved GCG Financial (now Alera Group) as the City’s benefits broker.
On September 21, 2021, City Council again approved Alera Group to continue as the broker for the next three years. One of the duties of Alera Group is to price, negotiate, and recommend the renewal of medical insurance, pharmaceutical management, vision, and dental insurance contracts for the City.
The City is a self-insured organization and is responsible for all medical, dental, and pharmaceutical expenses for each plan. As a self-insured organization, the City contracts for the administration of the medical insurance program, while internally funding actual claim expenses. The city offers three medical plans, including:
1. HMO: Health Maintenance Organization
2. PPO: Traditional Preferred Provider Organization
3. PPO: HDHP-High Deductible Health Plan with Health Savings Account (HSA)
To limit liabilities, the City maintains individual stop-loss reinsurance for individuals with catastrophic claims of more than $200,000 for the HMO plan and $300,000 for the PPO plans.
Since 2014, the City’s medical and pharmaceutical plans outperformed national averages as set forth in the charts below:
The City implemented significant changes in recent years to the healthcare program.
Changes include plan design revisions, rebalancing participating premium contributions, and a greater variety of voluntary cost-savings benefits. Specific examples of the changes include:
• Implemented Medicare supplement plan providing enhanced benefits at a lower cost, saving approximately $600,000 annually.
• Implemented plan design changes to balance health care costs between the City and employee/retirees.
• Awarded the dental contract to Delta Dental, increasing customer satisfaction with network and reducing costs to both the City and employees.
• Expanded wellness offerings and other voluntary wellness and health programs.
• Contracted with a pharmacy benefit manager (CVS-Caremark).
• Outsourced stop-loss reinsurance for competitive pricing; negotiated stop-loss reinsurance contracts each year.
• Implemented prescription drug management programs with CVS-Caremark after review by a third-party pharmacy team.
• Removed an underperforming plan.
• Implemented CRX International pharmacy saving participants and the City approximately $132,614 through June 30, 2023.
• Implemented high performance network with BCBS and tiered plan design.
• Added enhanced well-being management programs.
• Implemented Zero for savings to participants and the City for x-ray and labs.
DISCUSSION:
Information on the City’s comprehensive healthcare plan is detailed below. In short, staff is proud to report a positive experience with vendors in 2023, that no benefit pricing increases are proposed for 2024, and that total healthcare costs have increased by approximately .5% since last year.
For 2024, staff in consultation with Alera Group, recommends several key relationships to help mitigate cost increases, while still offering access to comprehensive benefits. The first recommendation is to continue our relationship with BCBSIL to provide the HMO plan and administer the PPO plans. The second recommendation is to award Stop-Loss reinsurance coverage to Optum, Inc. for the PPO plans. The third recommendation is to renew with CVS-Caremark for prescription drug administration for the PPO plans. Additional supporting contract of note includes the Employee Assistance Program (EAP) with Curalinc.
Medical Claim Administration - Blue Cross Blue Shield of Illinois (BCBSIL)
The City’s medical insurance contract with BCBSIL expires on December 31, 2023. The recommended renewal reflects a 10.5% decrease for HMO claim administrative fees and a 5.6% increase for the PPO claim administrative fees. The primary reason for the shift in fees is the movement in enrollment. There are fewer individuals enrolled in the HMO, whereas HDHP enrollment has increased.
Therefore, it is recommended to continue using BCBSIL for the Medical Plan administration in 2024 due to the strong network provided to employees and the competitive administration costs.
Stop Loss Reinsurance - Optum, Inc.
As discussed above, the City maintains individual Stop-Loss reinsurance for individuals with catastrophic claims of more than $200,000 on the HMO plan (through BCBSIL) and $300,000 on the PPO plans (currently through Sun Life). Blue Cross requires the HMO policy to be contracted through Blue Cross. The current policy for the PPO plans is renewable/marketed annually.
Alera Group conducted a Stop-Loss marketing for the PPO with 15 re-insurance providers.
• 4 responses are pending, as they were not able to abide by the terms and conditions of releasing the renewal with data through July.
• 6 additional carriers were not competitive with their initial quote.
• 5 carriers were able to provide competitive quotes, in addition to the incumbent carrier.
Optum, Inc. shared a firm offer of $86.45 PEPM, which is 22% lower than the current rate, and does include the concession for Vital Incite at $2.69 PEPM, $2.00 PEPM to Blue Cross due to outsourcing of Stop-Loss and Gene Therapy Rider at $1.99 PEPM. They also agreed to lock in the rate with claims data through July with the signed acceptance prior to September 1, 2023.
Alera Group recommends the contract with Optum, Inc. for the 2024 plan year.
Pharmacy Benefit Manager - CVS-Caremark
The City contracted with CVS-Caremark beginning in 2017 to act as the City’s Pharmacy Benefit Manager (PBM) for the PPO plans. Since that time the City has realized savings in prescription drug costs for the PPO plans. CVS-Caremark is proactive in its approach to changes in the marketplace offering education about new products and clinical strategies, promoting the use of lower-cost drugs, managing our specialty drug spend, and promoting health and wellness in order to provide the best prescription drug options.
Therefore, it is recommended to continue using CVS-Caremark as PBM in 2024. CVS-Caremark will continue working with our employees and retirees on tools to lower pharmaceutical expenses, including increased use of mail-order and generic pharmaceuticals.
Employee Assistance Program - Curalinc
The existing contract with Curalinc expires December 31, 2023. Alera Group staff reviewed EAP services with comparable contracts. Of the four carriers reviewed, it was determined Curalinc’ s cost increase to $1.25 PEPM was considerably lower than other carriers, while providing benefits and services the City has utilized throughout the duration of the relationship. In collaboration with Procurement, it was determined that Curalinc would be considered a sole source product.
The term of contract with Curalinc is January 1, 2024 - December 31, 2026.
FISCAL IMPACT:
Healthcare costs are budgeted and expensed to the Self Insurance Fund based on the nature of each expense and reflect no changes in comparison to the 2023 projections.
Fixed administrative costs associated with each plan are expensed based on the number of enrollees, while claims are processed based on utilization. Fees also include costs for Stop-loss coverage, which is also based upon enrollment and is estimated at $1.24 million for the PPO and HDHP coverages. Additionally, prescription drug costs, also based on a claims-only basis are projected at $5.8 million. Dental Insurance costs are subject to charges upon use, and fixed costs are also based on the number of enrollees.
The projection provided by Alera Group for all plans is estimated at $19.62 million and is used in the development of the 2024 Budget, which is currently under review. The 2024 amounts reflect no changes to premiums for the medical and dental plans.